Outlook for Real Estate Market Surges in Second Quarter Amid Strong Demand, According to First American Real Estate Sentiment Index
June 6, 2017, Santa Ana, Calif.
First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released First American’s proprietary Real Estate Sentiment Index (RESI) for the second quarter of 2017. The RESI is based on a quarterly survey of independent title agents and other real estate professionals, providing a unique gauge on the real estate market using the crowd-sourced wisdom and expertise of real estate experts.
Second Quarter 2017 Real Estate Sentiment Index
- Overall, confidence for transaction volume growth over the next 12 months increased 9.1 percent from Q1 2017 and decreased 4.8 percent compared with a year ago.
- Confidence for growth in purchase transaction volume over the next 12 months increased 2.7 percent from last quarter and fell 1.1 percent compared with a year ago.
- Confidence in refinance transaction volume growth over the next 12 months increased by 18.5 percent from last quarter and fell 9.1 percent compared with a year ago.
- Prices across all property types are expected to drop by a modest 0.18 percentage points over the next 12 months compared to last quarter.
Chief Economist Analysis: Title Agent and Real Estate Professional Confidence Rises with Strong Demand, Economic Conditions
“Overall, confidence among title agents and real estate professionals in transaction volume growth in the coming year swelled this quarter, surging 9.1 percent. The increase was driven by the rise in expectations for both purchase transactions and refinance transactions amid persistent low mortgage rates,” said Mark Fleming, chief economist at First American. “Strong Millennial demand and continued positive economic conditions combined with widespread tight supply are causing a dilemma in the market, as homeowners balance the benefit of selling their home in today’s sellers’ market with the risk of becoming a buyer in the sellers’ market.”
Millennials’ Home-buying Challenges Similar to Previous Generations
“In contrast to the perception that Millennials are eschewing homeownership for the ease and flexibility of renting, this quarter’s survey provided more evidence that Millennials are increasingly participating in the housing market,” said Fleming. “Title agents and real estate professionals estimated that the average age of the first-time homebuyers that they work with is between 26 and 30 (55 percent), or 31-35 (32 percent). In fact, combined, 26-to-35 year-olds accounted for 87 percent of first-time buyers, according to survey participants.
“Despite the rising rate environment and limited inventory, title agents and real estate professionals validated that Millennials represent the majority of first-time homebuyers today. Interestingly, according to title agents and real estate professionals surveyed, Millennials are making the choice to own primarily based on the desire to improve their financial situation and to accommodate having children,” said Fleming. “Like generations before them, saving for the down payment is the biggest obstacle. When Millennials buy a home may be different, but why Millennials buy homes is arguably the same as it’s always been.
“Title agents and real estate professionals were asked to identify the primary motivation behind first-time homebuyers’ deciding to buy a home. The most frequently cited reason was ‘buying is a better financial investment than renting’ at 41 percent. Starting a family and having children (23 percent), and increased income or a new job (23 percent) were the next most frequently cited reasons,” said Fleming. “The decision to get married was the least cited motivation. While these results potentially discount the importance of lifestyle choices in the decision to become a homeowner, clearly, starting a family still plays an important role in the decision.
“As with generations past, the primary challenge of saving the all-important down payment remains the single most important impediment to achieving the goal of homeownership,” said Fleming. “Title agents and real estate professionals most frequently cited saving for a down payment as the primary obstacle to those that decide to become a homeowner (38 percent). Overall affordability was the second most cited obstacle (31 percent), followed by the lack of inventory in the market (19 percent) and access to credit (12 percent). Perhaps surprisingly, current market conditions and credit terms ranked low as impediments to homeownership, according to the title agents and real estate professionals surveyed,” said Fleming.
Second Quarter 2017 RESI Transaction Volume Sentiment Highlights
“The expectation for residential refinance transactions declined the most year-over-year, falling 24 percent,” said Fleming. “Expectations for purchase transaction growth are positive for all property types, although retail purchase expectations are barely positive.”
- Residential: The five states with the greatest increase in title agent and real estate professional confidence for residential purchase transaction volume growth as compared with a year ago are: Louisiana (+24.1 percent), Texas (+15.6 percent), New York (+12.9 percent), Missouri (+11.4 percent), and Tennessee (+9.7 percent).
- Multi-Family: The five states with the greatest increase in title agent and real estate professional confidence for multi-family purchase transaction volume growth as compared with a year ago are: New Mexico (+66.7 percent), Louisiana (+58.7 percent), Colorado (+53.1 percent), Mississippi (+50.0 percent), and Oregon (+40.0 percent).
Second Quarter 2017 RESI Price Growth Expectation Highlights
“Residential property prices are expected to grow 4.2 percent in the coming year, the strongest price forecast among all property types,” said Fleming.
- Residential: The five states in which title agents and real estate professionals had the highest predictions for residential price growth in the coming year are: Kentucky (+8.6 percent), Washington (+8.0 percent), Michigan (+6.1 percent), Maryland (+6.0 percent), New York (+5.8 percent).
- Multi-Family: The five states in which title agents and real estate professionals had the highest predictions for multi-family property price growth in the coming year are: Kentucky (+5.9 percent), Maryland (+5.8 percent), Washington (+5.8 percent), Colorado (+5.4 percent), and New York (+4.9 percent).
What Do the RESI Number Values Mean?
Title insurance agents and real estate professionals are experts in their local real estate markets and have valuable insight. First American’s proprietary Real Estate Sentiment Index is based on a quarterly survey of independent title agents and other real estate professionals, providing a unique gauge on the real estate market using the crowd-sourced wisdom and expertise of real estate experts.
The next release of the First American Real Estate Sentiment Index will be posted in September 2017.
The methodology statement for the First American Real Estate Sentiment Index is available at http://www.firstam.com/economics/real-estate-sentiment-index.
Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2017 by First American. Information from this page may be used with proper attribution.
About First American
First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With total revenue of $5.6 billion in 2016, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2016 and again in 2017, First American was named to the Fortune 100 Best Companies to Work For® list. More information about the company can be found at www.firstam.com.